Fourth quarter earnings begin this week with a number of high-profile companies, including some of nation’s largest banks like JP Morgan and Citigroup, reporting earnings.
Overall, earnings for S&P 500 companies are expected to decline an estimated 8-12% which would represent the third largest year-on-year decline for the index since 2009.
One of the worst hit sectors is expected to be the energy industry. Analysts anticipate a decline of nearly 150% in earnings for the fourth quarter. Nonetheless, energy stocks have risen significantly (nearly 30%) in the past 90 days.
Industrial earnings may also be badly hit with earnings expected to drop nearly 40% year-over-year.
The travel and hospitality industries, meanwhile, will continue to be poor performers.
Nonetheless, there are some relative bright spots. The financial services sector is expected to fair relatively well in part thanks to a loan environment that did not deteriorate as badly as some feared in recent months. Meanwhile, trading revenue at the biggest banks is believed to have picked up in the fourth quarter.
Since April of 2020 and into the new year, the market environment has benefited the bulls as investors cheered the two vaccines that came to market in December. Meanwhile, there’s an expectation that additional fiscal and monetary policy measures will help support the economy as the nation tries to get back to normal. A better than expected earnings season (and, let’s face it…the bar is pretty low on earnings estimates) should bode well for the markets as we move through the winter months.